Airbus wins $7 billion Philippine Air order

The Airbus company logo is pictured at the main entrance of the Airbus facility in the northern German city of Stade on October 11, 2006. REUTERS/Morris Mac Matzen

MANILA/PARIS (Reuters) - Airbus EAD.PA won a $7 billion order on Tuesday from Philippine Airlines (PAL.PS), beating Boeing (BA.N) to a deal marked by diplomatic lobbying as the European planemaker appeared close to another major Asian deal in China.

The flag carrier plans to buy up to 100 new jets in total within the next five to seven years as it restructures operations to become a low-cost carrier and regain dominance of the local market from arch-rival Cebu Air Inc (CEB.PS).

Those purchases would take its fleet to around 140 planes, far ahead of Cebu’s 38-strong fleet, which it plans to double. Philippine Airlines (PAL) said it was still in talks with both Airbus EAD.PA and Boeing for its next tranche of planes.

For this stage of its fleet expansion, the airline has ordered 10 long-haul A330-300s and 44 jets from the A321 family, with delivery starting in 2013, Asia’s oldest airline said in a statement. The A321s include 10 existing models and 34 of a fuel-saving version available from mid-decade, the A321neo.

Industry sources said they expected some of these aircraft to replace older, less-efficient models, but most of the newly ordered aircraft would fuel expansion to counter Cebu Air, the country’s largest budget carrier.

In Paris, shares in Airbus parent EADS bucked a weaker market to rise 0.5 percent to just under 30 euros.

Philippine Airlines will pay Airbus in cash, with part of the money to come from bank loans, said President Ramon Ang, who also heads Philippine conglomerate San Miguel Corp (SMC.PS).

The carrier is also ready to issue more shares to fund its jet purchases, it said in a statement.

“The good Boeing planes we are looking at are the 777-300ER and the upcoming 777-X. We’re also interested in the Boeing 787-9 Dreamliner,” Ang told reporters on the sidelines of the deal-signing event in Manila on Tuesday.

“We have the option on whichever type of aircraft to go,” he said.

Boeing and Airbus are locked in a global contest for market share, in some cases more than halving prices to bolster orders of the newly revamped models of best-selling narrowbody jets, industry sources and analysts say.

San Miguel, which bought a 49 percent stake in PAL and a sister airline in April from Filipino billionaire and brewing rival Lucio Tan in a deal worth about $500 million, controls the management of the airline.

DIPLOMATIC DIMENSION

A territorial spat in the South China Sea, Asia’s biggest potential military flashpoint, appears to have added a diplomatic dimension to the aircraft order talks as Washington seeks to cement a growing alignment with Manila on the issue.

One person familiar with the matter said there had been significant “commercial and political pressure” on the airline to secure a deal with Boeing.

Boeing declined to comment.

In Washington, the State Department acknowledged that it had lobbied for Boeing to get the deal, but described this as routine and said strong U.S.-Philippine ties would not be affected by the outcome.

“We always advocate for U.S. companies, particularly when there’s a big contract at stake... but nations make sovereign decisions and they make them based on their own set of criteria,” State Department spokeswoman Victoria Nuland said.

“We have a very long, deep, broad relationship with the Philippines. As you know, we are doing more now in the area of security support than wwe’ve been able to do in a long time, and I think that relationship is extremely strong,” she said.

Beijing’s sovereignty claim over the huge area has set it against Vietnam and the Philippines as the three race to tap possibly huge oil reserves.

The United States pledged in April to triple military aid to Manila in 2012 while remaining broadly cautious on defense ties.

In another diplomatically sensitive deal, a German government official meanwhile confirmed that Airbus expected to win more business from China, despite a recent row over airline emissions that obstructs a number of existing Chinese orders.

The EADS EAD.PA subsidiary is “optimistic” about securing deals during a state visit to Beijing this week by Chancellor Angela Merkel, the official said, asking not to be named.

EADS Chief Executive Tom Enders is due to join a large business delegation accompanying Merkel to China.

On Monday, industry sources said Airbus hoped to sell up to 100 A320-family planes to China during the trip.

Such short-range aircraft, some of which are assembled on Chinese soil, have been spared any fallout from the row between China and European Union as domestic travel expands.

China continues however to block the purchase of some 35 larger Airbus aircraft to protest against EU plans to enforce a carbon reduction scheme that opposing nations deem unfair.

China regularly orders aircraft in large batches timed to coincide with high-level contacts with U.S. or European leaders.

Despite the new deals, Airbus is widely expected to lose its position as top-selling plane manufacturer this year to Chicago-based Boeing, which is enjoying a resurgence after falling behind its European rival for five straight years.